Osborne and the straight jacket

Britain’s dire public finances will impose a “straitjacket” on an incoming Conservative government for years to come, the shadow chancellor, George Osborne, claims today, as he declares that he is conducting a careful review of his economic plans in the light of the downturn.

In an interview with the Guardian, Osborne claims that “the complete economic mess” will “cast a long shadow” over British politics, prompting the Tories to think “very hard” about what they will do in government.

Well what’s new George? Can anyone remember the last time an outgoing Labour administration left the UK’s finances in a healthy position ready for the Conservatives to build upon? David Cameron and George Osborne will have their work cut out.

“A shakeup of tax and spending rules by creating a new “fiscal framework” to govern how a Tory government raises and spends money. The new rules, to be judged by an independent panel, will overhaul the way that multibillion pound public finance initiative schemes and other public sector liabilities are measured. Osborne believes Gordon Brown has used PFI to “get money off the balance sheet”, and to shield high borrowing: “Very bad deals were struck which I think will cost the taxpayer for many, many years to come.”

Thank heavens for that, an abandonment of the oft repeated position that the Tories would match Labour’s spending plans.

Implementing the party’s central economic goal – to trigger a gradual slowing of public spending by sharing the proceeds of economic growth between tax cuts and spending increases. Osborne refuses to say whether he would match Labour’s spending plans for the next round, up until 2014, but adds: “The Tory party is not there to impose impossible public expenditure cuts in an economic downturn.”

There you are, now you see it now you don’t. You cannot share the proceeds of standing still, or worse going backwards!

Adapting to a changed economic climate, where people are more hostile to green taxes at the heart of the Tory policy on the environment. Support for them has been hit by the row over rises in car tax. “I think green taxes are a very powerful tool in tackling climate change … [but the] case is made much more difficult by Gordon Brown and Labour because they have used them as stealth taxes, by which I mean they don’t replace some other tax.”

At last! A politician that understands how the vast majority of us feel about the Green Taxes scam, if the revenue isn’t going to be spent on environmental issues, or is seen as additional taxation, then we won’t feel willing to support it.

He calls for an overhaul of Britain’s fiscal system after Brown “busted” his two rules – the “golden rule”, which says the government can only borrow to invest over an economic cycle, and the sustainable investment rule which says debt must be no more than 40% of national income. He adds that he expects to be shocked by the state of the books if he makes it to the Treasury. “Gordon Brown as chancellor was very adept at micro-manipulation of the red book and the debt figures and the borrowing figures. The cumulative impact of that over the years is that I don’t think anyone has a clear idea of what the true state of the national debt is, or what the true state of the structural deficit.”

Debt is sure to cast a long shadow over the term(s) of the next government and we cannot expect to see Gordon Brown or his Chancellor (whoever it may be) to reign back on public spending and even further borrowing before the next election. Pressures will mount on the Bank of England to start raising rates to keep the lid on monetary growth and inflation, and the payback will come in growing unemployment for people in South Shields and the north east. This has always been the damning consequence of Labour governments with a simple policy aim – to tax, borrow, and spend.

As is normal in these cycles, the incoming Conservative government will have a tough uphill battle to repay the national debt, gradually reducing the burden of public spending without massively affecting services, and somehow reducing the tax burden on hard working families and individuals, one must be prepared and patient to see the results when the next economic cycle begins to shape.